Bank has 'short list' of potential targets for acquisition in Nashville, Knoxville

Oct. 17, 2013

Written by

Jamie McGee

The Tennessean

Pinnacle Financial Partners Inc.’s new quarterly dividend will not interfere with the bank’s plans for mergers and acquisitions, said CEO and President Terry Turner.

“We do have an advantaged stock, (and) we do have some likelihood that we might find mergers and acquisitions,” Turner said Wednesday in a conference call. “We believe we can manage both mergers and acquisitions and organic growth and pay the dividend.”

Pinnacle reported a 27 percent increase in earnings per share in the third quarter Tuesday and announced that its board of directors approved an 8-cent quarterly cash dividend. That reflects its ability to build capital in recent years even as the banking industry has struggled amid weakened loan demand, lower interest rates and increased costs tied to regulation. Nashville’s largest locally based bank has grown its loans by 12.6 percent in the past year to a record $3.97 billion as of the third quarter and its deposits by 10 percent to $3.6 billion, as of June 30.

Turner said that the list of acquisition targets that have appealed to the bank is “short” and that he is looking in Nashville and Knoxville for potential expansion. The bank, which entered Knoxville in 2007, has added a new office each year in Knoxville, and an acquisition could accelerate that growth.

“There is a slightly growing interest and willingness to sell some of the small franchises because of all the headwinds,” he said. “That said, I think there is still a fairly meaningful gap between bids and asks. I don’t think the market is on fire to do something.”

Chattanooga and Memphis are also attractive growth markets, but Pinnacle prefers to expand by starting new offices in those cities, rather than by a merger, Turner said.

No slowdown seen

Turner also emphasized the cash dividend is not a sign the bank expects its growth to slow down. He said he expects Pinnacle’s double-digit loan growth rate to continue as it rewards existing shareholders and attracts new investors seeking dividend-paying stocks.

“(The dividend) broadens their investor appeal,” said Kevin Reynolds, Nashville-based regional bank analyst at Wunderlich Securities. “Capital is so strong and so abundant that they have an opportunity to give some of that capital back in the form of a cash dividend.”

The dividend will be paid on Dec. 20 to common shareholders of record as of the close of business on Nov. 26.

Third-quarter net income climbed to $14.6 million, or 42 cents a share, from $11.3 million, or 33 cents a share, in the year-ago quarter. The earnings matched the 42-cent average estimate of analysts.

Revenue, excluding securities gains and losses, increased 11.7 percent to $57.4 million in the third quarter as net interest income climbed to $44.6 million, up from $40.9 million in the same period last year.

Pinnacle’s loan growth rate declined in the third quarter, increasing by $43.9 million compared with $153 million in the previous period. The bank, which ranks as the fourth-largest in Nashville in terms of deposit market share, has stood out among peers in its ability to grow loan numbers, Reynolds said.

“They are hiring the best lenders in the marketplace,” he said. “The evidence suggests that Pinnacle is highly successful at getting the senior-most lenders in the marketplace to come to them and bring their long-term relationships over a period of time.”